As we continue our original research into the SME sector for our next report, today we feature some of the key highlights relating to the relative confidence among business owners, and an assessment of the relative risk from a lending bank perspective. This is using data from the 26,000 SME DFA survey.
The scores are calculated from a matrix of specific questions in the survey, and also data from our loan book portfolio analysis in terms of the relative potential risk of loss, failure or default.
Looking first at risk and confidence by industry, business owners in the information, media and telecommunications sector are the most confident, whilst those in mining and agribusiness are the least positive. Construction, retail trade and financial services are in the middle of the range. From a risk perspective, construction, mining, retail, agribusiness and transport are among those with higher prospects of default and failure.
On a state basis, NSW and VIC are the most confident, whilst WA and TAS are the least confident. From a risk perspective, WA and NT have the highest prospect of failure.
Looking at why businesses are borrowing, we find that the highest risks stem from those seeking to fund working capital – this same group has the lowest confidence rating. Those seeking to borrow for business expansion have higher levels of confidence, and relatively lower risk scores.
Those businesses who are relatively new (especially under 3 years) have lower confidence, and higher risk, whilst businesses who have been trading for longer have higher confidence levels and lower risks. Remember that about half of businesses will fail within 5 years of commencement, according to our last published SME report, which is still available.
Younger business owners tend to be more confident, but also carry a higher risk rating, The lowest risk age is 34-45 years.
Finally, an interesting snapshot of the use of social media. Those who are heavy users have the highest confidence rating, compared with those who do not use social media at all. On the other hand, the lowest risk scores reside among those who are occasional social media users. Not sure why, but an interesting snippet, nevertheless.
We will publish more highlights from our research later, and the fully updated edition of the SME report will be published in a few weeks.
